A company which has suffered loss as a result of the actions of another party will often incur further costs or outlays for goods or services in order to put themselves back in the position which they would have been had the loss not occurred.
These costs or outlays may be sought in a claim against the at-fault party, however, what is often not considered is whether the GST incurred by an aggrieved company may also form part of the claim.
This can be a perplexing point as, on the face of it, the innocent company has incurred the GST as a result of the other party.
However, the Courts have held that, generally, an award of damages for a company should not include an amount for GST.
The Court has consistently upheld this general rule where a company is entitled to claim input tax credits equating to the amount of GST incurred.
On this basis, the Court’s view is that it would be wrong for a company to receive an award of damages for GST, where it has recovered that amount back either in the form of a reduction of what it must remit to the Commissioner of Taxation or as a refund, because it has not suffered this loss.
A company entitled to input tax credits arises on creditable acquisitions and creditable importations.
A company makes a creditable acquisition where:
- The company acquires something for a creditable purpose. An example of this may be where a company its business.
- The supply to the company is a taxable supply and the company provides considerations for the supply. A taxable supply is a supply of goods or services made for consideration in the course or furtherance of an enterprise that is connected with Australia made by a registered entity (or an entity which is required to be registered).
- The company is registered or required to be registered. A company is required to be registered if it it carries on an enterprise and its GST turnover meets the registration turnover threshold (which is $150,000.00 for non-profit bodies and $75,000.00 for all other entities).
A company makes a creditable importation where:
- The company imports goods for a creditable purpose (i.e. the goods are imported in furtherance of your enterprise).
- The importation is a taxable importation; and
- The company is registered or required to be registered (see above).
Accordingly, if your client intends to make a claim for a loss that includes GST, it should first review its accounting processes and take advice to determine whether that amount can be, or has been, claimed as an input tax credit.
Article written by Benjamin Casey of our Brisbane office.